India's Central Bank Voices Need For Structural Reforms For Balanced, Inclusive Growth

The Reserve Bank of India in April this year estimated that the GDP growth rate for the Fiscal Year 2022-23 would be 7.2 percent instead of 7.8 percent. The RBI cited the ongoing Russian special operation in Ukraine as one of the reasons behind the lowered GDP growth estimate.

The Reserve Bank of India (RBI) released its annual report for 2021-22 on Friday, in which it made a strong case for structural reforms as it said that they are important for the sustained, balanced, and overall growth of the country.

India’s apex bank also noted in its report that structural reforms will be crucial to deal with the after-effects of the pandemic, which has adversely hit the economy.

Talking about how the reforms would augment the economic growth, the RBI, in the chapter on "Assessment and Prospects", said that economic growth can be ensured by reskilling workers and enabling them to adopt new technologies for raising productivity.

In its report, the RBI also stressed that in order to ensure growth in the future, it will be important to address the supply-side bottlenecks, calibrating monetary policy to bring down inflation and boost capital spending.

The report also took into account the Russian special operation in Ukraine. The report said that the growing geopolitical tensions over Ukraine have had an adverse impact on the world economy, which has already been hit badly by multiple waves of the pandemic, supply chain and logistics disruptions, increased inflation, and financial market turbulence.

"The immediate impact of geopolitical aftershocks is on inflation, with close to three-fourths of the consumer price index at risk. The elevation in international prices of crude, metals and fertilisers has translated into a term of trade shock that has widened trade and current account deficits", the report said.

The RBI said that high frequency indicators like internal and external demand, capital expenditure by the government, monsoon, etc. already point to some loss of momentum in the economic recovery that has been gaining traction from the second quarter of 2021-22. However, the negative experience of 2021-22 has given valuable lessons that will define the path of the Indian economy in the year ahead.

The report of the Central Bank also mentioned that the policy interventions by the government could provide balance to the economy.

While referring to the policy interventions, the RBI cited the removal of customs duty on the import of raw cotton, prohibiting wheat exports, reduction of road and infrastructure cess (RIC) on petrol by INR 8 ($0.10) per litre and diesel by INR 6 ($0.077) per litre, banning sugar exports, increase of exports duty on certain steel products, reduction on import duty on certain raw materials for steel and plastic manufacturing, removal of customs duty and agriculture infrastructure, and development cess (AIDC) on import of two million tonnes of crude sunflower oil and crude soybean oil, and others.

"A faster resolution of the geopolitical conflict and no further severe COVID-19 waves could subdue and even reverse these pressures and help contain core inflation", the annual report said.